Euro Extends Gains Amid German Spending Plans
The euro reached a four-month high against the US dollar on Thursday, driven by a surge in European bond yields. The rise followed Germany’s proposal for a €500 billion ($539.85 billion) infrastructure fund and changes to its borrowing limits. Investors reacted positively to the news, viewing it as a sign of increased fiscal stimulus in the eurozone.
Meanwhile, the US dollar remained under pressure, hovering near a four-month low against a basket of major currencies. This came after the US administration granted Canada and Mexico a one-month exemption from auto import tariffs. The move provided temporary relief to trade concerns but highlighted the unpredictable nature of US trade policies.
Sterling and Aussie Dollar Gain as Risk Sentiment Improves
The British pound and Australian dollar both strengthened, benefiting from improving risk sentiment. Sterling hit a four-month high, while the Australian dollar climbed to a one-week peak. The Aussie also gained support from solid domestic economic data and additional stimulus measures from China, its largest trading partner. However, the Chinese yuan pulled back after reaching a four-month high earlier in the week.
“The moves in European markets were remarkable,” said Kyle Rodda, senior financial analyst at Capital.com. “The German government is finally utilising its strong balance sheet.”
Rodda added that US trade policy remains the biggest source of uncertainty for global markets. However, the temporary tariff exemption “supported hopes that rational decision-making will prevail in the White House, preventing trade relations from worsening further.”
European Bond Yields Surge, Markets Await ECB Decision
German bond yields jumped as investors priced in the expected increase in borrowing. The 30-year bond yield rose as much as 25 basis points during the session. The euro gained 0.3% to $1.0820, marking its strongest level since November 7.
For the week, the euro has surged 4.3%, putting it on track for its best performance since March 2009. Investors are now focused on the European Central Bank’s (ECB) upcoming policy decision. A 0.25% rate cut is widely expected, but markets are keen to understand the ECB’s broader outlook on monetary easing.
Sterling climbed to $1.2913, its highest level since November 11. Analysts at DBS noted that the US economy is seen as prioritising fiscal restraint, while the eurozone is adopting a more aggressive spending approach. This divergence in policy could shape currency trends in the coming months.
However, analysts also cautioned that after three days of significant US dollar selling, some profit-taking could emerge.
US Dollar Remains Weak, Yen and Yuan Show Modest Moves
The US dollar index slipped to 104.09, its lowest level since November 6. Against the Japanese yen, the dollar remained steady at 148.83. In the official market, the yuan edged up slightly to 7.2388 per dollar, after falling 0.7% over the previous two sessions.
The Australian dollar reached $0.63555, its strongest since February 25. China’s National People’s Congress, which began this week, signalled further efforts to boost consumer spending and economic growth amid ongoing trade tensions with the US.
In North America, the US dollar weakened slightly to C$1.4310, its lowest since February 26, and remained steady at 20.4330 Mexican pesos. The White House’s decision to delay auto tariffs for Canada and Mexico for one month added to the uncertainty surrounding US trade policy.
With inputs from Reuters